Will the Geeks Inherit Wall Street?

I remember there was this ridiculously smart guy I went to college with who, in some circles, might qualify as a "geek." This guy was a math whiz, computer whiz, a bit socially awkward, and had the pencil-thin physique of Waldo. This guy was not derided or bullied or ignored but, in fact, widely accepted and celebrated by the so-called jocks and popular crowd, in part because he could create bouncer-proof fake IDs in a matter of minutes, using nothing but a laptop and laser printer, as well as build a Shawshank-like tunnel that led from his dorm room, under the gates of the quad, out into the free world where kegs of beer could be snuck into his room, undetected. I mention this guy because he went on to become a highly successful Wall Street derivatives trader (seven-figure successful) and it is his type of banker, the so-called quant, that is and has been the future of Wall Street for quite some time.

At first, quant geeks were creating complicated securities to trade on Wall Street, putting themselves into big-money-making roles. Then they were creating complicated computer programs to automate trades, putting many traders out of work. And now they're creating complex computer programs that could soon replace the so-called relationship bankers: the impeccably mannered and connected, boarding school and Ivy League educated M&A and corporate finance professionals.

Technology whizzes who helped Goldman Sachs eliminate hundreds of trading jobs over the past few years are venturing into the bank's flagship M&A business, making some junior bankers uneasy.

A team of 75 programmers, internally referred to as "strats," has been developing technology to make Goldman's elite dealmakers more productive. That team within investment banking has doubled in size since 2014, when long time tech banker George Lee was appointed chief information officer for the investment banking division.

Programmers are now supporting those handling equity underwriting, leveraged buyouts and deals within the financial services and real estate sectors. They are also analyzing client data to offer better advice on deal targets and types of actions that might please a particular company’s investor base.

Perhaps this underscores how Goldman Sachs CEO Lloyd Blankfein sees Goldman: as a tech firm, not a bank. It also underscores the fact that next in line to succeed Blankfein is not another banker or trader but a technologist (which perhaps explains why ex-Goldman COO Gary Cohn jumped ship to the Trump Show).

Goldman's deputy finance chief, Marty Chavez, has been telling people worried about their jobs to learn skills that cannot be replicated by a computer.

At a Harvard event last month, Chavez said some investment banking tasks were "begging to be automated," according to an MIT Technology Review report. Chavez, a computer scientist who made his name leading teams of strats, is now considered a contender to eventually succeed Chief Executive Lloyd Blankfein.

Blankfein himself likes to say Goldman is more of a technology firm than a financial one, even though dealmakers and traders have led the bank for its entire 148-year history.

Although in the near future, the so-called relationship banker will still be much needed and gainfully employed by Wall Street firms, what their place will be at big investment banks in five, seven, and 10 years out is anything but certain. As in other industries where various job functions are increasing being automated, the relationship banker is not immune to the rise of the robots (and/or the quants).

One concern is that technology may make some staff redundant. Another is that the strats themselves – more likely to hold engineering PhDs from the Massachusetts Institute of Technology than MBAs from Wharton – could get ahead of bankers on a career path …

The top 10 Wall Street firms have cut the number of client-facing investment bankers they employ by 15 percent since 2010, according to research firm Coalition.

Advances in technology could thin the ranks of low-level staff at Goldman as much as 10 percent in the next few years, people familiar with the matter said. Kognetics, a software company that uses artificial intelligence to assist investment bankers, says about a quarter of their routine can be automated.

And so, if you're a young jobseeker or soon-to-be graduate, and are passionate about the financial markets, and investment banking is your top career of choice, and you don't know how to code, then you might want to sign up for a coding class or three as soon as you can (either through your school or outside of it, at one of the boot camps out there). That is, don't be afraid to geek out a little. Or a lot. It could, someday soon, make the difference between holding a job and losing it.

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